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Attractive prospect

Comcast is trading at an extremely low valuation relative to its historical multiples, peers, and the broader market. Investor concerns have been varied over the past year:

• Basic subscriber losses
• Increased telco competition
• Increased competition from web-based substitutes
• Slowing broadband growth
• Increased regulatory activity
• Major wireless capital spend
• No dividend
• Slow pace of share repurchases

These concerns are valid but only minimally impact the free cash flow generation of this company, which is primarily driven by video pricing increases and reduced capital spending. The company has been clear that 2007 is the peak year for capital spending

Given the slowing (but still rapid) growth and increased risks faced by Comcast, a lower than historically observed multiple is warranted, but at close to 5.0x 2009 EBITDA, it is cheaper than all its cable peers and most S&P 500 companies, even those in declining industries (e.g. rural local exchange carriers). A much higher multiple is warranted for a company with over 20% EBITDA growth over the next 3 years, defensive characteristics, and positive fundamentals.

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